Oil Prices Fall Despite Supply Fears – OIR 150818

Today, we will take
a quick look at some of the critical figures and data in the energy markets
this week.

We will then look at some of
the key market movers early this week before providing you with the latest
analysis of the top news events taking place in the global energy complex over
the past few days. We hope you enjoy.

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By the end of the year, the EIA expects U.S. natural gas pipeline
capacity into the South Central region (the Gulf Coast) to reach almost 19
billion cubic feet per day (Bcf/d).

The EIA notes that this is a
historic change in which the Gulf Coast becomes a demand center rather than
simply a source of natural gas supply. Tens of billions of dollars have flowed
into petrochemical complexes and LNG export facilities.

There are three key pipelines set to come online towards the end of 2018 that
will help carry natural gas from the Marcellus Shale to the Gulf Coast.

Market Movers

Chesapeake Energy (NYSE: CHK)
agreedto settle a
four-year federal class-action lawsuit over natural gas royalties to
leaseholders in Pennsylvania for $7.75 million. Chesapeake was accused of
unfairly deducting payments to landholders in post-production, and the company
has agreed to set up a fund to pay over 10,000 leaseholders.

EQT (EQT, EQM)maintained its targeted in-service date
for the Mountain Valley Pipeline for the first quarter of 2019. EQT was just
ordered to halt construction over permitting issues. The 300-mile pipeline will
carry natural gas from Pennsylvania through West Virginia to Virginia,
connecting Marcellus gas to the Southeast.

Cheniere Energy (NYSEMKT:
LNG)signed a 25-year deal to ship LNG to Taiwan’s CPC
Corp. Cheniere says the $25 billion, 25-year deal will allow help the company
expand its export capacity in the Gulf of Mexico.

Tuesday August 14, 2018

Oil prices rebounded in early trading on Tuesday
before falling in the afternoon as economic uncertainty stemming from Turkey's
currency crisis dampened bullishness. Saudi Arabia's oil production reduction
in July and rising fears of Iranian outages weren't enough to keep oil prices
in the green.

Megaprojects get greenlight
again. The
first wave of megaprojects since the oil market downturn in 2014 is on the
verge of receiving a greenlight. According to Wood Mackenzie, the oil and gas
industry is set to move forward with $300 billion of new
spending in 2019 and 2020, more than the combined total of the three-year
period between 2015 and 2017. The aggressive spend seems to run in contrast to
the promise from industry executives to maintain capital discipline. Oil
executives seem to think that they can return to megaprojects while avoiding
the cost blowouts of the past, but that remains to be seen. “Oil companies have
improved their delivery in small projects, but can they do it with bigger
ones?” Angus Rodger, a WoodMac analyst, told Bloomberg. “There’s massive upside
on the table if they can show sustained success with capital discipline as oil
prices rise. They could deliver the best returns in a decade.”

Shell says deepwater
drilling breaks even at $30.Royal Dutch Shell (NYSE: RDS.A) says that
the economics of drilling have “flipped” back in favor of deepwater drilling
after several years of low investment. Shell says that dramatic cost declines
mean that deepwater drilling can breakeven at $30 per barrel, and offshore
offers a better return than onshore shale. “It’s great to have both in the
portfolio and we are growing our shales business... but in terms of sheer cash
flow delivery, our deepwater has significantly more cash flow potential,”
Shell’s head of exploration and production Andy Brown told the FT.

Venezuela to hike gasoline
prices to market level. Venezuela’s cast-strapped
government saidthat it
would allow domestic gasoline prices to rise to the international market level,
a move clearly made because the government can no longer afford the hefty cost
of subsidizing fuel. “Gasoline must be sold at an international price to stop
smuggling to Colombia and the Caribbean,” President Maduro said in a televised
address.

India considers cutting oil
imports from Iran by 50 percent. India has offered to slash its
purchases of oil from Iran by half if the U.S. grants it an exemption on the
rest, according to Bloomberg. India is Iran’s second
largest buyer of oil, and the extent of the outages in Iran will largely come
down to decisions made in New Delhi and Beijing.

Iran vows never to
negotiate with Trump. Iran’s Supreme Leader said that Iran would never negotiate
with the U.S. over a new nuclear deal.

ETP plans Dakota Access
expansion. Energy Transfer Partners (NYSE: ETP) is planning a 100,000-bpd expansion of its
Dakota Access pipeline that carries crude oil from the Bakken to Illinois, and
connects to a system that runs down to the Gulf Coast. The pipeline has
averaged about 500,000 bpd of throughput, but the company is eyeing an
expansion.

Caspian nations near deal on
oil reserves. The five countries bordering the Caspian Sea have signed an agreement to settle longstanding
territorial disputes over the control of Caspian oil and gas reserves. The
region is estimated to hold about 48 billion barrels of oil and 292 trillion
cubic feet of natural gas, according to a 2012 EIA estimate. The five nations
include Russia, Kazakhstan, Iran, Azerbaijan and Turkmenistan.

ConocoPhillips prepares job
cuts. ConocoPhillips (NYSE: COP)said it is preparing for “modest” job
cuts in Houston and throughout the U.S. to help keep costs down. Conoco posted
a $1.6 billion profit in the second quarter but is focusing on paying down
debt.

Trump’s tariffs hurting
pipelines. Trump’s proposed doubling of steel and aluminum tariffs on Turkey
could add more costs to oil and gas pipelines in the United States. Steel
prices have already been on the rise in recent months because of U.S. tariffs
on imports from a list of countries. For instance, Plains All American (NYSE: PAA)says that the tariffs have already added
$40 million to the cost of its pipeline that will run from the Permian to the
Texas Coast. Plains was denied an exemption for imported steel from Greece.
Turkey is not a major supplier, but U.S. companies imported over $1 billion
worth of steel from Turkey last year.

PetroChina could cut U.S. LNG
purchases. PetroChina, a subsidiary of China’s CNPC, may suspend its
purchases of LNG from the United States this winter, just as new capacity from Cheniere Energy (NYSE: LNG) comes
online. That could force Cheniere to cut prices and offer discounts to get
its cargoes to market. Oil and gas have yet to be officially hit with tariffs
by China, but that is still a possibility.

Saudi eyes Tesla investment
to diversify. Elon Musk has received a massive amount of media attention for the
bizarre way he announced the potential for taking Tesla (NASDAQ: TSLA) private.
His financing depends on the deep pockets of Saudi Arabia. From the Saudi
standpoint, the move is being interpreted as a hedge against the threat of peak oil
demand.

Venezuela blackout could lead to deeper
declines in oil production. A widespread blackout affecting
nearly all of Zulia state in Venezuela – home to 300,000 bpd around Lake
Maracaibo – could lead to more outages of Venezuelan supply. The blackout is a
few days old, but could last until at least the end of August, according to Argus Media. PDVSA had plans to
reactivate thousands of old wells in the region, a plan that will be shelved
for months because of the blackout.